In a regular policy meeting, the Reserve Bank of Australia (RBA) announced its decision to hold its key policy interest rates unchanged, citing persistent inflationary pressures in the economy. The cash rate target remains steady at 4.35%, while the interest rate applied to exchange settlement balances is also retained at 4.25%.
The RBA's inflation target is set within a band of 2% to 3% annually. Recent data show that inflation, after excluding certain volatile costs, has reported an annual rate of 3.9%. Additionally, Australia's headline consumer price index experienced a year-over-year increase of 3.5% over the 12 months leading to July, as per the Australia Bureau of Statistics published in late August.
Despite these figures, there are no immediate signs of a cooling trend in consumer prices. The RBA has forecasted that inflation may not return to the target range sustainably until 2026. Similar to many countries, Australia faced significant inflation during and following the COVID-19 pandemic, reaching a troubling peak of 8.4% in December 2022.
Although the inflation rate has moderated since then, it has remained stubbornly between 3% and 4% throughout 2024, suggesting a possible floor in pricing pressures. To combat inflation, the RBA gradually raised its key policy rate from an all-time low of 0.1% in early 2022 to 4.35% as of November 2023, where it remains.
These restrictive monetary policies, while intended to curb inflation, have not fully alleviated pressures in the labor market, according to the RBA. Employment figures indicate a modest growth of 0.3% per month over three months leading to August, while the unemployment rate stood at 4.2%, up from a lower point of 3.5% in mid-2023.
Nevertheless, the participation rate remains at record highs, job vacancies stay elevated, and the average hours worked have stabilized. Despite growth in labor markets, the broader Australian economy has shown sluggishness, attributed partly to the central bank's monetary policies. Recent Gross Domestic Product (GDP) data for the June quarter confirmed a weakness in growth, with earlier declines in real disposable incomes and ongoing restrictive financial conditions continuing to impact consumer spending, primarily discretionary items.
The RBA has indicated that interest rate cuts are unlikely until inflation returns to its target range. They have expressed a commitment to bringing inflation back under control, stating they will take the necessary measures to achieve that goal..